Economic Headaches: What’s Behind the Second-Quarter Slowdown?

NMI and Componenet Month to Month change

Source: Institute for Supply Management

The Institute for Supply Management reported on Friday that economic activity in the non-manufacturing sector grew for the 40th consecutive month in April. The NMI registered 53.1 percent, a 1.3 percentage point decline from March but still above the dividing line between growth and contraction, drawn at 50 percent.

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ISM surveys more than 375 firms across the United States to compile the index, which consists of four equally-weighted components: business activity, new orders, employment, and supplier deliveries. Of these components, supplier delivery times experienced the biggest decline, losing 2.0 points to land at 51.0 percent in April. Keep in mind that slower delivery times are actually a positive economic indicator, because it suggests that demand is up.

The business activity index fell 1.5 points to 55.0, employment fell 1.3 points to 52.0, and new orders edged 0.1 points lower to 54.5. All four components, as well as the headline NMI, showed that while non-manufacturing business activity increased in April, it did so at a slower rate than in March.

Combined with the ISM’s Manufacturing Report on Business, released earlier in the week, investors can develop a fairly robust impression of economic activity in the U.S. Like the non-manufacturing sector, the manufacturing sector continued to grow in April, albeit at a slower rate than in March. The PMI shrank 0.6 points on the month to 50.7.

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April’s relatively soft PMI, hovering just above the line between broad growth and contraction in the sector, was largely the result of a 4.0 point decline in the employment index, which stood at 50.2 for the month.

PMI and NMI

Source: Institute for Supply Management

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